SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended April 30, 1996 Commission File No. 1-9389
CHARTER POWER SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 13-3314599
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1400 Union Meeting Road
Blue Bell, Pennsylvania 19422
(Address of principal executive office) (Zip Code)
(215) 619-2700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO_____
Number of shares of the Registrant's Common Stock outstanding on June 10, 1996:
6,444,826
<PAGE>
CHARTER POWER SYSTEMS, INC.
AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION Page No.
Item 1 - Financial Statements
Consolidated Balance Sheets -
April 30, 1996 and January 31, 1996................. 3
Consolidated Statements of Income -
Three Months Ended April 30, 1996 and 1995.......... 5
Consolidated Statements of Cash Flows -
Three Months Ended April 30, 1996 and 1995.......... 6
Notes to Consolidated Financial Statements.......... 8
Report of Independent Accountants................... 14
Item 2 - Management's Discussion and Analysis
Of Financial Condition and Results of Operations.... 15
PART II. OTHER INFORMATION 18
SIGNATURES 19
2
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CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
April 30, January 31,
1996 1996
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 1,735 $ 5,472
Restricted cash and cash equivalents 4,091 5,402
Accounts receivable, less allowance for
doubtful accounts of $1,378 and
$1,421, respectively 36,572 31,855
Inventories 45,335 35,227
Deferred income taxes 6,523 6,235
Other current assets 1,213 1,367
------- -------
Total current assets 95,469 85,558
Property, plant and equipment, net 46,433 39,375
Intangible and other assets, net 5,690 3,287
Goodwill, net 11,525 2,607
------- -------
Total assets $159,117 $130,827
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,842 $ 200
Accounts payable 24,916 19,008
Accrued liabilities 14,770 13,513
Other current liabilities 2,994 2,535
------- -------
Total current liabilities 44,522 35,256
Deferred income taxes 3,188 2,750
Long-term debt 29,162 15,417
Other liabilities 8,761 8,478
------- -------
Total liabilities 85,633 61,901
------- -------
The accompanying notes are an integral part of these statements.
3
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CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
(Dollars in thousands)
(Unaudited)
April 30, January 31,
1996 1996
---- ----
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value,
10,000,000 shares authorized;
6,470,176 and 6,326,176 shares
issued, respectively 65 63
Additional paid-in capital 38,059 36,283
Minimum pension liability adjustment (760) (760)
Treasury stock, at cost, 57,400 shares (1,304) (1,304)
Note receivable from stockholder,
net of discount of $70 (594) -
Cumulative translation adjustment (95) -
Retained earnings 38,113 34,644
-------- --------
Total stockholders' equity 73,484 68,926
-------- --------
Total liabilities and
stockholders' equity $159,117 $130,827
======= =======
The accompanying notes are an integral part of these statements.
4
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CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(Unaudited)
Three months ended
April 30,
1996 1995
---- ----
Net sales $62,429 $58,777
Cost of sales 47,308 44,985
------ ------
Gross profit 15,121 13,792
Selling, general and administrative
expenses 7,443 7,065
Research and development expenses 1,874 1,593
------- ------
Operating income 5,804 5,134
Interest expense, net 262 231
Other (income) expense, net ( 3) 56
------- ------
Income before income taxes 5,545 4,847
Provision for income taxes 1,899 1,672
------- -------
Net income $ 3,646 $ 3,175
======= =======
Net income per common and
common equivalent share $ .56 $ .50
======= =======
Weighted average common and
common equivalent shares 6,548 6,395
======= =======
Dividends per share $ .0275 $ .0275
======= =======
The accompanying notes are an integral part of these statements.
5
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CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three months ended
April 30,
1996 1995*
---- -----
Cash flows provided (used) by operating activities:
Net income $ 3,646 $ 3,175
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,940 1,536
Deferred taxes 150 (171)
Changes in:
Accounts receivable (2,096) (4,230)
Inventories (2,964) (4,960)
Other current assets (478) (104)
Accounts payable 4,121 7,423
Accrued liabilities (444) 329
Income taxes payable 1,489 1,653
Other current liabilities (33) (340)
Other liabilities 66 438
Other, net 25 (188)
------- ------
Net cash provided by operating activities 5,422 4,561
------- ------
Cash flows provided (used) by investing activities:
Acquisition of businesses, net of cash
acquired (19,739) -
Acquisition of property, plant and equipment (4,310) (1,648)
Change in restricted cash 1,311 75
------- ------
Net cash used by investing activities (22,738) (1,573)
------- ------
Cash flows provided (used) by financing activities:
Repayment of long-term debt (6,367) (1,390)
Proceeds from new borrowings 19,784 -
Proceeds from issuance of common stock 331 60
Payment of common stock dividends (173) (164)
Purchase of treasury stock - (87)
------- ------
Net cash provided (used) by financing activities 13,575 (1,581)
------- ------
Effect of exchange rate changes on cash 4 12
------- ------
The accompanying notes are an integral part of these statements.
6
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CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Dollars in thousands)
(Unaudited)
Three months ended
April 30,
1996 1995*
---- -----
(Decrease) increase in cash and cash
equivalents (3,737) 1,419
Cash and cash equivalents at beginning
of period 5,472 1,097
----- -----
Cash and cash equivalents at end of
period $ 1,735 $ 2,516
===== =====
SUPPLEMENTAL CASH FLOW
DISCLOSURES
Interest paid, net $ 248 $ 482
Income taxes paid 261 189
SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Acquired businesses:
Estimated fair value of assets acquired $14,565 $ -
Goodwill and identifiable intangible
assets 11,661 -
Purchase price obligations (1,160) -
Cash paid, net of cash acquired (19,739) -
------- -----
Liabilities assumed $ 5,327 $ -
======= =====
Dividends declared but not paid $ 177 $ 164
Note receivable from stockholder in connection
with issuance of common stock $ 594 -
* Reclassified for comparative purposes.
The accompanying notes are an integral part of these statements.
7
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CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(UNAUDITED)
1. INTERIM STATEMENTS
The accompanying interim consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes thereto
contained in the Company's Annual Report to Shareholders for the fiscal year
ended January 31, 1996. The consolidated financial statements presented herein
are unaudited but, in the opinion of management, include all necessary
adjustments (which comprise only normal recurring items) required for a fair
presentation of the consolidated financial position as of April 30, 1996 and the
consolidated statements of income and cash flows for the three months ended
April 30, 1996 and 1995. However, interim results of operations necessarily
involve more estimates than annual results and are not indicative of results for
the full fiscal year.
2. INVENTORIES
Inventories consisted of the following:
April 30, January 31,
1996 1996
Raw materials ............................ $12,059 $14,033
Work-in-progress ......................... 21,635 9,357
Finished goods ........................... 11,641 11,837
------- -------
$45,335 $35,227
======= ======
3. INCOME TAXES
A reconciliation of the provision for income taxes from the statutory
rate to the effective rate is as follows:
Three months ended
April 30,
1996 1995
---- ----
U.S. statutory income tax 35.0% 35.0%
State tax, net of federal income tax benefit 3.3 3.7
Reduction in valuation allowance - (3.8)
Reduction of taxes provided in prior years (3.6) -
Other (0.4) (0.4)
---- ----
34.3% 34.5%
==== ====
8
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CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands)
(UNAUDITED)
4. CONTINGENT LIABILITIES
With regard to the following contingent liabilities there have been no
material changes since January 31, 1996.
Because the Company uses lead and other hazardous substances in its
manufacturing processes, it is subject to numerous federal, Canadian, Mexican,
state and local laws and regulations that are designed to protect the
environment and employee health and safety. These laws and regulations include
requirements of periodic reporting to governmental agencies regarding the use
and disposal of hazardous substances and compliance with rigorous criteria
regarding exposure to employees and the disposal of scrap. In the opinion of the
Company, the Company complies in all material respects with these laws and
regulations.
Notwithstanding such compliance, if damage to persons or the
environment has been or is caused by hazardous substances used or generated in
the conduct of the Company's business, the Company may be held liable for the
damage and be required to pay the cost of remedying the same, and the amount of
any such liability might be material to the results of operations or financial
condition. However, under the terms of the purchase agreement with Allied for
the Acquisition of the Company (the Acquisition Agreement), Allied is obligated
to indemnify the Company for any liabilities of this type resulting from
conditions existing at January 28, 1986 that were not disclosed by Allied to the
Company in the schedules to the Acquisition Agreement.
The Company, along with numerous other parties, has been requested to
provide information to the United States Environmental Protection Agency (the
EPA) in connection with investigations of the source and extent of contamination
at several lead smelting facilities (the Third Party Facilities) to which the
Company had made scrap lead shipments for reclamation prior to the date of the
Acquisition. As of January 16, 1989, the Company, with the concurrence of
Allied, entered into an agreement with other potentially responsible parties
(PRPs) relating to remediation of a portion of one of the Third Party
Facilities, the former NL Industries (NL), facility in Pedricktown, New Jersey
(the NL Site), which agreement provides for their joint funding on a
proportionate basis of certain remedial investigation and feasibility study
activities with respect to that site.
9
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CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands)
4. CONTINGENT LIABILITIES (continued)
In fiscal 1993 in accordance with an EPA order, a group comprised of
the Company and 30 other parties commenced work on the cleanup of a portion of
the NL Site based on a specified remedial approach which is now completed. Based
on currently available information and well defined contribution levels of the
other parties, including NL Industries, the Company does not expect to incur
costs in excess of the $138 previously reserved.
With regard to the remainder of the NL Site, the EPA is pursuing
negotiations with NL and the other PRPs, including the Company, regarding the
conduct and funding of the remedial work plan. The EPA has proposed a cost
allocation plan, however, the allocation percentages between parties and the
basis for allocation of cost are not defined in the plan or elsewhere.
Therefore, a reliable range of the potential cost to the Company of this phase
of the clean-up cannot currently be determined. Accordingly, the Company has not
created any reserve for this potential exposure.
The remedial investigation and feasibility study at a second Third
Party Facility, the former Tonolli Incorporated facility at Nesquehoning,
Pennsylvania (the Tonolli Site), was completed in fiscal 1993. The EPA and the
PRPs are continuing to evaluate the draft remedial design work plan for the
site. Based on the estimated cost of the remedial approach selected by the EPA,
the Company believes that the potential cost of remedial action at the Tonolli
Site is likely to range between $16,000 and $17,000. The Company's allocable
share of this cost has not been finally determined, and will depend on such
variables as the financial capability of various other PRPs to fund their
respective allocable shares of the remedial cost. Based on currently available
information, however, the Company believes that its most likely exposure with
respect to the Tonolli Site will be the approximately $579 previously reserved,
the majority of which is expected to be paid over the next three to five years.
The Company has responded to requests for information from the EPA with
regard to three other Third Party Facilities, one in September 1991, one (the
Chicago Site) in October 1991 and the third (the ILCO Site) in October 1993. Of
the three sites, the Company has been identified as a PRP at the ILCO and
Chicago Sites only.
Based on currently available information, the Company believes that the
potential cost of remediation at the ILCO Site is likely to range between
$54,000 and $59,000 (based on the estimated costs of the remedial approach
selected by the EPA). The Company's allocable share of this cost has not been
finally determined and will depend on such variables as the financial capability
of various other PRPs to fund their respective allocable shares of
10
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CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands)
4. CONTINGENT LIABILITIES (continued)
the remedial cost. However, on October 31, 1995 the Company received
confirmation from the EPA that it is a de minimis PRP at the ILCO Site. Based on
currently available information, however, the Company believes that its most
likely exposure with respect to the ILCO Site is an immaterial amount which has
been previously reserved, the majority of which is expected to be paid over the
next three to five years.
Based on currently available information, the Company believes that the
potential cost of the remediation at the Chicago Site is likely to range between
$8,000 and $10,500 (based on the preliminary estimated costs of the remediation
approach negotiated with the EPA). Sufficient information is not available to
determine the Company's allocable share of this cost. Based on currently
available information, however, the Company believes that its most likely
exposure with respect to the Chicago Site will be the approximately $283
previously reserved, the majority of which is expected to be paid over the next
two to five years.
Allied has accepted responsibility under the Acquisition Agreement for
potential liabilities relating to all Third Party Facilities other than the
aforementioned Sites. Based on currently available information, management of
the Company believes that the foregoing will not have a material adverse effect
on the Company's financial condition or results of operations.
5. ACQUISITIONS
Effective February 22, 1996 the Company acquired certain equipment and
inventory of LH Research, Inc. used in their power supply business, along with
all rights to the name "LH Research," for approximately $4,100, subject to
certain adjustments. The Company used available cash to finance the acquisition.
The acquisition has been recorded using the purchase method of
accounting and the net purchase price approximates the fair value of the assets
acquired. The results of operations are included in the Company's consolidated
financial statements from the date of acquisition.
Effective March 12, 1996, the Company acquired from Burr-Brown
Corporation its entire interest in Power Convertibles Corporation (PCC)
consisting of 1,044,418 shares of PCC common stock and all outstanding preferred
stock. In addition the Company acquired or repaid approximately $5,200 of
indebtedness of PCC. On April 26, 1996, the Company
11
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CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
5. ACQUISITIONS (continued)
acquired 190,000 shares of PCC common stock from the former chief executive
officer of PCC which together with the shares previously acquired represents in
excess of 99.6% of the outstanding PCC common stock. As of May 29, 1996, the
Company purchased all remaining shares of PCC common stock and shares of PCC
common stock covered by stock options.
The source of funds for the acquisition was advances under the
Company's existing credit facility with NationsBank, N.A., National Westminster
Bank, NJ and CoreStates Bank, N.A. PCC is engaged in the business of designing
and manufacturing DC to DC converters used in communications, computer, medical
and industrial and instrumentation markets and also produces battery chargers
for cellular phones.
The acquisition has been recorded using the purchase method of
accounting. The aggregate purchase price of approximately $17,000 has been
allocated on the basis of the estimated fair market values of the assets
acquired and liabilities assumed. The excess of the aggregate purchase price
over the estimated fair market values of the net assets acquired of
approximately $9,000 was recognized as goodwill and is being amortized over a
period of 20 years. The results of operations are included in the Company's
consolidated financial statements from the date of acquisition.
The following unaudited pro forma financial information combines the
consolidated results of operations as if both acquisitions had occurred as of
the beginning of the periods presented. Pro forma adjustments include only the
effects of events directly attributed to a transaction that are factually
supportable and expected to have a continuing impact. The pro forma adjustments
contained in the table below include amortization of intangibles, interest
expense on the acquisition debt, elimination of interest expense on debt not
acquired, reduction of certain selling, general and administrative expenses and
the related income tax effects.
Three months
ended April 30,
1996 1995
---- ----
Net sales $64,352 $68,045
Net income 3,392 2,613
Net income per common and
common equivalent share .52 .41
12
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CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands)
5. ACQUISITIONS (continued)
The pro forma financial information does not necessarily reflect the
operating results that would have occurred had the acquisitions been consummated
as of the above dates, nor is such information indicative of future operating
results. In addition, the pro forma financial results contain estimates since
the acquired businesses did not maintain information on a period comparable with
the Company's fiscal year-end.
13
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Charter Power Systems, Inc.
We have reviewed the accompanying consolidated balance sheet of Charter Power
Systems, Inc. and Subsidiaries as of April 30, 1996, the related consolidated
statements of income for the three months ended April 30, 1996 and 1995 and the
related consolidated statements of cash flows for the three months ended April
30, 1996 and 1995. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of January 31, 1996 and the related
consolidated statements of income, stockholders' equity and cash flows for the
year then ended (not presented herein); and in our report dated March 22, 1996,
we expressed an unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying consolidated
balance sheet as of January 31, 1996, is fairly presented, in all material
respects, in relation to the consolidated balance sheet from which it has been
derived.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
June 5, 1996
14
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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company completed two acquisitions during the first quarter of
fiscal 1996. Effective February 22, 1996, the Company purchased certain
equipment and inventory of LH Research, Inc. ("LH"), a Costa Mesa, California
based manufacturer of standard power supply systems for the electronics
industry. The power supplies are used in telecommunications, computer, medical,
process control and other industrial applications. Effective March 12, 1996, the
Company acquired from Burr-Brown Corporation its entire interest in Power
Convertibles Corporation ("PCC") consisting of 1,044,418 shares of PCC common
stock and all outstanding preferred stock. In addition the Company acquired or
repaid approximately $5,200,000 of indebtedness of PCC. On April 26, 1996, the
Company acquired 190,000 shares of PCC Common Stock from the former chief
executive officer of PCC, which together with shares previously acquired by the
Company represents in excess of 99.6% of the outstanding PCC Common Stock. As of
May 29, 1996 the Company purchased all remaining shares of PCC Common Stock and
shares of PCC Common Stock covered by stock options. Tucson, Arizona based PCC
produces DC to DC converters used in communications, computer, medical and
industrial and instrumentation markets and also produces battery chargers for
cellular phones.
Net sales for the fiscal 1997 first quarter ended April 30, 1996 were
up $3,652,000 or 6 percent compared to the equivalent quarter in fiscal 1996.
Sales recorded by the acquired businesses accounted for approximately $5,000,000
of net sales. On a company wide basis, domestic and international sales of
standby power products and power supplies to the telecommunications market
increased approximately 23 percent if the telecommunications sales of PCC and LH
are included or 16 percent if these sales are excluded. Sales of motive power
products were down 16 percent due to lower volumes partially offset by higher
prices.
Gross profit for the first quarter of fiscal 1997 increased $1,329,000
or 10 percent to $15,121,000 from $13,792,000 in fiscal 1996, resulting in a
gross margin of 24.2 percent versus 23.5 percent in the prior year.
Selling, general and administrative expenses remained proportional to
sales at 12 percent of sales for the first quarter of fiscal 1997 and 1996.
Research and development expenses continued at 3 percent of sales for
the first quarter of fiscal 1997 and 1996.
15
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Interest expense, net, increased 13 percent from the first quarter of
fiscal 1996 to the first quarter of fiscal 1997 as a result of higher debt
balances related to the acquisitions partially offset by lower effective
interest rates.
As a result of the above, income before income taxes for the first
quarter of fiscal 1997 increased $698,000 or 14 percent from the comparable
quarter of the prior year and net income rose 15 percent from the first quarter
of fiscal 1996 to $3,646,000 or 56 cents per share.
Liquidity and Capital Resources
- -------------------------------
Net cash flows provided by operating activities increased 19 percent to
$5,422,000 in the first quarter of fiscal 1997 compared to $4,561,000 in the
comparable quarter of the prior year. This increase was primarily due to smaller
increases during the first quarter of fiscal 1997 in accounts receivable and
inventories partially offset by less of an increase in accounts payable.
Collections of accounts receivable improved during the current quarter versus
the prior year's first quarter. Inventory and accounts payables increased during
the current quarter primarily due to a required purchase of certain raw
materials with extended payment terms.
Net cash used by investing activities totaling $22,738,000 in the first
quarter of fiscal 1997 includes the purchase by the Company of PCC and certain
equipment and inventory of LH for $19,739,000. Acquisition of property, plant
and equipment during the first quarter of fiscal 1997 increased to $4,310,000
over the comparable quarter of the prior year, primarily due to the plant
capacity expansion programs at the Company's Conyers, Georgia and Leola,
Pennsylvania facilities.
Net cash provided by financing activities was $13,575,000 compared to
net cash used by financing activities of $1,581,000 in the prior year's first
quarter. The additional borrowings in the current year's first quarter were used
primarily for the funding of the acquisitions. In addition, during the first
quarter of fiscal 1997, the Company elected to accelerate the retirement of the
remaining term loan portion of its long-term debt.
The Company's availability under the current loan agreement is expected
to be sufficient to meet its ongoing cash needs for working capital
requirements, debt service, capital expenditures and possible strategic
acquisitions. Capital expenditures in the first quarter of fiscal 1997 were
incurred primarily to fund capacity expansion, new product development, a
continuing series of cost reduction programs, normal maintenance capital, and
regulatory compliance. Fiscal 1997 capital expenditures are expected to be
approximately $17,000,000 for similar purposes.
16
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Forward Looking Statements
- --------------------------
Certain information contained in this Quarterly Report on Form 10-Q,
including, without limitation, information appearing under Item 2, "Management's
Discussion and Analysis of Financial Condition and Results of Operations," are
forward-looking statements (within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934). Factors
that appear with the forward-looking statements, or in the Company's other
Securities and Exchange Commission filings, could affect the Company's actual
results and could cause the Company's actual results to differ materially from
those expressed in any forward-looking statements made by the Company in this
Quarterly Report on Form 10-Q.
17
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
2.1 Asset Purchase Agreement, dated as of February 21, 1996, between LH
Research, Inc. and International Power Systems, Inc. (incorporated by
reference to Exhibit 2.1 to the Company's Current Report on Form 8-K
dated February 22, 1996).
2.2 Purchase Agreement, dated as of February 23, 1996, between
International Power Systems, Inc. and Burr-Brown Corporation relating
to Power Convertibles Corporation (incorporated by reference to
Exhibit 2.1 to the Company's Current Report on Form 8-K dated March
12, 1996).
4.1 Third Amendment to Financing and Security Agreement dated March 13,
1996 (filed herewith).
10.1 Charter Power Systems, Inc. Incentive Compensation Plan (filed
herewith).
11. Computation of per share earnings (filed herewith).
15. Letter from Coopers & Lybrand L.L.P., independent accountants for the
Company, regarding unaudited interim financial information (filed
herewith).
27. Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K:
The Company has filed with the Securities and Exchange Commission
during the quarter ended April 30, 1996 (i) a Current Report on Form
8-K dated February 22, 1996 (as amended by a Form 8-K/A filed May 7,
1996) reporting under Item 2 that the Company had acquired certain
assets of LH Research, Inc., and (ii) a Current Report on Form 8-K
dated March 12, 1996 (as amended by a Form 8-K/A filed May 16, 1996)
reporting under Item 2 that the Company had acquired certain shares of
stock and indebtedness of Power Convertibles Corporation. Each of the
Forms 8- K/A contained historical financial statements and pro forma
financial information concerning the acquired businesses.
18
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SIGNATURES
- -------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHARTER POWER SYSTEMS, INC.
June 14, 1996 BY: /s/ Alfred Weber
---------------------------------
Alfred Weber
Chairman, President and Chief
Executive Officer
June 14, 1996 BY: /s/ Stephen E. Markert, Jr.
----------------------------------
Stephen E. Markert, Jr.
Vice President Finance and
Treasurer
(Principal Financial and
Accounting Officer)
19
<PAGE>
EXHIBIT INDEX
4.1 Third Amendment to Financing and Security Agreement dated March 13,
1996 (filed herewith).
10.1 Charter Power Systems, Inc. Incentive Compensation Plan (filed
herewith).
11. Computation of per share earnings (filed herewith).
15. Letter from Coopers & Lybrand L.L.P., independent accountants for the
Company regarding unaudited interim financial information (filed
herewith).
27. Financial Data Schedule (filed herewith).
20
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INCENTIVE COMPENSATION PLAN
---------------------------
FOR EXECUTIVE AND KEY SALARIED EMPLOYEES
(Excludes Sales Bonus Program)
------------------------------
FOR THE YEAR ENDING JANUARY 31, 1997
------------------------------------
I. Introduction
------------
The Incentive Compensation Plan for Executives and Key Salaried
Employees as adopted and amended by the Compensation Committee of the
Board of Directors is designed to reward individual performance as
measured against specified objectives. The Plan is also designed to
recognize other employees for a completely discretionary bonus based
upon significant contribution. Executive and key employees who joined
the company in the plan year may, with the approval of the president,
participate in the Incentive Compensation Plan on a prorated basis
(based on the number of full months they are actively employed).
II. Establishment of Objectives
---------------------------
Each executive and key employee shall establish at the beginning of
each year, with his/her supervisor, objectives against which his/her
performance for that year shall be measured.
These objectives must correspond to the overall goals of the company.
III. Objectives
----------
Objectives include: earnings per share; achieving corporate cash flow
goals and other significant individual goals.
IV. Additional Criteria & Conditions
--------------------------------
- 60% or more of individuals participants' priorities must be
accomplished to earn any bonus.
- It is possible for participants to receive in excess of 100%
achievement of an individual goal. However, these achievements must
satisfy the combined judgement of the individual's direct manager and
the President, CEO. In no situation can achievement of an individual
goal exceed 125%.
- At its sole discretion, the Board reserves the right to recognize
significant issues, factors or contributions related to individual
participants and to adjust all or part of any participant's bonus
accordingly. The Board reserves the right to alter, amend, reduce,
suspend or terminate the Incentive Plan. Only active employees (those
physically performing their assigned duties) are eligible to
participate in the Incentive Compensation Plan.
- Employees who terminate their employment with the company, or
employees who are terminated by the company for any reason whatsoever,
are not eligible for incentive compensation for the fiscal year during
which employment is terminated.
<PAGE>
EXHIBIT 11
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
EARNINGS PER SHARE COMPUTATIONS
(Dollars and shares in thousands)
(Unaudited)
Three months ended
April 30,
1996 1995
---- ----
NET INCOME $3,646 $3,175
===== =====
Weighted average number of common shares
outstanding 6,283 5,967
Effect of shares issuable under stock
option plan 265 428
----- -----
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING (PRIMARY) 6,548 6,395
===== =====
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE (PRIMARY) $ .56 $ .50
===== =====
Weighted average number of common shares
outstanding 6,283 5,967
Effect of shares issuable under stock
option plan 266 428
----- -----
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING (FULLY DILUTED) 6,549 6,395
===== =====
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE (FULLY DILUTED) $ .56 $ .50
===== =====
<PAGE>
EXHIBIT 15
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
re: Charter Power Systems, Inc. and Subsidiaries
Registration on Forms S-8 (Registration No. 33-31978,
No. 33-71390 and No. 33-86672)
We are aware that our report dated June 5, 1996 on our review of interim
financial information of Charter Power Systems, Inc. and Subsidiaries for the
period ended April 30, 1996 and included in the Company's quarterly report on
Form 10-Q for the quarter then ended is incorporated by reference in the
registration statements of Charter Power Systems, Inc. and Subsidiaries on Forms
S-8 (Registration No. 33-31978, No. 33-71390 and No. 33-86672). Pursuant to Rule
436(c) under the Securities Act of 1933, this report should not be considered a
part of the registration statement prepared or certified by us within the
meaning of Sections 7 and 11 of that Act.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
June 14, 1996
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF 4/30/96 AND STATEMENT OF INCOME FOR THE PERIOD
ENDED 4/30/96 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> APR-30-1996
<CASH> 5826
<SECURITIES> 0
<RECEIVABLES> 37950
<ALLOWANCES> 1378
<INVENTORY> 45335
<CURRENT-ASSETS> 95469
<PP&E> 46433
<DEPRECIATION> 0
<TOTAL-ASSETS> 159117
<CURRENT-LIABILITIES> 44522
<BONDS> 29162
0
0
<COMMON> 65
<OTHER-SE> 73419
<TOTAL-LIABILITY-AND-EQUITY> 159117
<SALES> 62429
<TOTAL-REVENUES> 62429
<CGS> 47308
<TOTAL-COSTS> 47308
<OTHER-EXPENSES> 1874
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 262
<INCOME-PRETAX> 5545
<INCOME-TAX> 1899
<INCOME-CONTINUING> 3646
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3646
<EPS-PRIMARY> .56
<EPS-DILUTED> .56
</TABLE>
THIRD AMENDMENT
TO FINANCING AND SECURITY AGREEMENT
THIS THIRD AMENDMENT TO FINANCING AND SECURITY AGREEMENT (this "Amendment")
is made as of this 13th day of March, 1996, by and among CHARTER POWER SYSTEMS,
INC., a corporation organized and existing under the laws of the State of
Delaware ("Charter Power"), C&D CHARTER POWER SYSTEMS, INC., a corporation
organized and existing under the laws of the State of Delaware ("C&D Charter"),
CACTUS HOLDINGS, INC., a corporation organized and existing under the laws of
the State of Delaware ("Cactus"), INTERNATIONAL POWER SYSTEMS, INC., a
corporation organized and existing under the laws of the State of Arizona
("International"), RATELCO ELECTRONICS, INC., a corporation organized and
existing under the laws of the State of Delaware ("Ratelco"), C&D/CHARTER
HOLDINGS, INC., a corporation organized and existing under the laws of the State
of Delaware ("Charter Holdings"), and CHARTER POWER OF CALIFORNIA, a corporation
organized and existing under the laws of the State of California ("Charter
California") (Charter Power, C&D Charter, Cactus, International, Ratelco,
Charter Holdings and Charter California are herein collectively referred to as
the "Existing Borrowers" and individually as an "Existing Borrower"); POWER
CONVERTIBLES CORPORATION, a corporation organized and existing under the laws of
the State of Arizona ("PCC"), PCC DE MEXICO S.A. DE C.V. ("PCC Mexico"), POWER
CONVERTIBLES IRELAND LIMITED ("PCC Ireland") and LH RESEARCH, INCORPORATED, a
corporation organized and existing under the laws of the State of Delaware ("LH
Research") (PCC, PCC Mexico, PCC Ireland and LH Research are herein sometimes
collectively referred to as the "Additional Borrowers" and individually as an
"Additional Borrower") and NATIONSBANK, N.A., a national banking association, in
its capacity as a lender ("NationsBank"), NATWEST BANK N.A., a national banking
association being formerly known as National Westminster Bank NJ ("NatWest"),
CORESTATES BANK, N.A., a national banking association ("CoreStates")
(NationsBank, CoreStates, and NatWest are herein collectively referred to as the
"Lenders" and individually, as a "Lender"); and NATIONSBANK, N.A., a national
banking association (the "Agent"); Witnesseth:
RECITALS
A. The Lenders, the Existing Borrowers and the Agent are parties to that
certain Financing and Security Agreement dated September 26, 1994 (as amended,
restated, supplemented or otherwise modified, the "Credit Agreement"). Under and
subject to the provisions of the Credit Agreement, the Lenders agreed to
establish jointly and severally in favor of the Existing Borrowers (i) a
revolving credit facility in an increased maximum principal amount not to exceed
SIXTY-FIVE MILLION DOLLARS ($65,000,000) (the "Total
-1-
<PAGE>
Revolving Credit Committed Amount"), (ii) a term loan facility (collectively,
the "Term Loans") in a maximum principal amount not to exceed FIFTEEN MILLION
DOLLARS ($15,000,000) (the "Total Term Loan Committed Amount") and (iii) a
letter of credit facility as part of the Revolving Credit Facility (the "Letter
of Credit Facility") in a maximum principal amount not to exceed EIGHT MILLION
DOLLARS ($8,000,000) (the "Letter of Credit Committed Amount").
B. International intends to acquire or has acquired all of the issued and
outstanding stock of PCC (the "PCC Acquisition") in accordance with the
provisions of that certain Purchase Agreement by and between International and
Burr-Brown Corporation (as amended, restated, supplemented or otherwise
modified, the "PCC Purchase Agreement") and has requested that the Agent and the
Lenders consent and agree to the proposed acquisition of PCC by International.
PCC Mexico and PCC Ireland are each and will remain wholly-owned subsidiaries of
PCC.
C. In addition, International has formed or intends to form LH Research, as
a wholly-owned subsidiary of International, and LH Research has acquired or will
acquire all or substantially all of the assets of LH Research, Inc. (the "LH
Acquisition") in accordance with the provisions of that certain Asset Purchase
Agreement by and between LH Research, Inc. and International (as amended,
restated, supplemented or otherwise modified, the "LH Purchase Agreement").
D. The Existing Borrowers have requested that (i) the Lenders and the Agent
consent and agree to the PCC Acquisition and the LH Acquisition and to the
formation of LH Research, the Lenders and the Agent have so agreed provided
that, among other things, (a) the Existing Borrowers and the New Borrowers
execute and deliver this Amendment, (b) the Existing Borrowers and the New
Borrowers, as appropriate, furnish to the Agent such information, items,
certifications and other documents (including, without limitation, such
additional agreements, documents, instruments, financing statements and
assignments) as the Agent and/or any of the Lenders may reasonably request in
connection with the closing and consummation of the transactions contemplated by
this Amendment.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Existing Borrowers, the New Borrowers, the Lenders and the
Agent hereby agree as follows:
-2-
<PAGE>
1. The recitals set forth above are true and accurate in each and every
respect and are incorporated herein by reference. All capitalized terms used
herein but not specifically defined herein shall have the respective meanings
given such terms in the Credit Agreement, unless the context indicates or
dictates a contrary meaning.
2. The Credit Agreement is hereby amended as follows:
a. Section 1.1 of the Credit Agreement is hereby amended to add the
following additional definitions:
"LH Research" means LH Research, Incorporated, a corporation
organized and existing under the laws of the State of Delaware, and its
successors and assigns.
"LH Research Acquisition Agreement" means that certain asset
purchase agreement by and among International and LH Research, Inc., as the same
may from time to time be amended, restated, supplemented or modified, together
with any and all exhibits and schedules thereto, amendments, modifications, and
supplements thereto, restatements thereof, and substitutes therefor.
"LH Research Acquisition Agreement Documents" means
collectively the LH Research Acquisition Agreement and any and all other
agreements, documents or instruments, previously, now or hereafter executed and
delivered by International, LH Research, Inc., or any other Person in connection
with the LH Research Acquisition Agreement Transaction, as the same may from
time to time be amended, restated, supplemented and modified.
"LH Research Acquisition Agreement Transaction" means the
asset purchase transaction contemplated by the LH Research Acquisition
Agreement.
"LH Research Assets" means all assets, equipment, inventory,
receivables and other tangible and intangible personal property of LH Research,
Inc. acquired by International or LH Research in accordance with the LH Research
Acquisition Agreement Transaction and also including any and all licensing
rights with respect to intellectual property acquired by International or LH
Research from LH Research, Inc., together with any and all proceeds and products
thereof.
-3-
<PAGE>
"PCC" means Power Convertibles Corporation, a corporation
organized and existing under the laws of the State of Arizona, and its
successors and assigns.
"PCC - Ireland" means Power Convertibles Ireland Limited, as
organized and existing under the laws of the Republic of Ireland, and its
successors and assigns.
"PCC - Mexico" means PCC De Mexico S.A. De C.V., as organized
and existing under the laws of the Republic of Mexico, and its successors and
assigns.
"PCC Acquisition Agreement" means that certain stock purchase
agreement by and among International and Burr-Brown Corporation, as the same may
from time to time be amended, restated, supplemented or modified, together with
any and all exhibits and schedules thereto, amendments, modifications, and
supplements thereto, restatements thereof, and substitutes therefor.
"PCC Acquisition Agreement Documents" means collectively the
PCC Acquisition Agreement and any and all other agreements, documents or
instruments, previously, now or hereafter executed and delivered by
International, Burr-Brown Corporation, or any other Person in connection with
the PCC Acquisition Agreement Transaction, as the same may from time to time be
amended, restated, supplemented and modified.
"PCC Acquisition Agreement Transaction" means the asset
purchase transaction contemplated by the PCC Acquisition Agreement.
b. The definition of "Additional Borrower" on page 2 of the Credit
Agreement is hereby amended to include PCC, PCC-Ireland, PCC-Mexico and LH
Research; provided that PCC, PCC-Ireland, PCC-Mexico and LH Research each
execute and deliver to the Agent an Additional Borrower Joinder Supplement in
the form required by the Credit Agreement.
c. The Agent and the Lenders agree that, subject to the terms,
conditions and understandings set forth in this Amendment, the LH Research
Acquisition Agreement Transaction and the PCC Acquisition Agreement Transaction
shall be deemed Permitted Acquisitions under the Credit Agreement.
-4-
<PAGE>
d. Section 4.1.1 on page 75 of the Credit Agreement is hereby amended
to add the following:
PCC-Ireland and PCC-Mexico are each Wholly-Owned Subsidiaries of PCC
and PCC has no Subsidiaries other than PCC-Ireland and PCC-Mexico.
Neither PCC-Ireland nor PCC-Mexico have any Subsidiaries. LH Research
is a Wholly-Owned Subsidiary of International.
e. As required by the Credit Agreement, the Borrowers have furnished to
the Agent and the Lenders financial projections which give effect to the closing
and consummation of both the LH Research Acquisition Agreement Transaction and
the PCC Acquisition Agreement Transaction in accordance with the provisions of
the LH Research Acquisition Agreement and the PCC Acquisition Agreement (the
"LH/PCC Financial Projections"). The Agent and the Lenders have reviewed the
LH/PCC Financial Projections and found them to be in the form required by the
Credit Agreement. Section 4.1.12 on page 78 of the Credit Agreement is hereby
amended to add the following:
The LH/PCC Financial Projections represent the Borrowers' good faith
estimate of the future Consolidated financial condition and results of
the operations of the Borrowers (including the Additional Borrowers)
and are based on assumptions included therein, which the Borrowers
believe in good faith to be reasonable. The Agent and the Lenders
acknowledge and agree that the representations and warranties with
respect to the LH/PCC Financial Projections are made only as of the
date such LH/PCC Financial Projections are furnished to the Agent and
shall not be deemed made or remade at any time thereafter.
f. The last sentence in Section 4.1.20 on page 81 of the Credit
Agreement is hereby amended to exclude Collateral located in Ireland.
g. Article 4 of the Credit Agreement is hereby amended to add the
following additional representations and warranties:
4.1.29. LH Research Acquisition Agreement Transaction. The Agent
has received true and correct photocopies of the fully executed LH Research
Acquisition Agreement and each of the LH Research Acquisition Agreement
Documents. Neither the LH Research Acquisition Agreement nor any of the LH
Research Acquisition Agreement Documents have been or will be modified, changed,
supplemented, canceled, amended or otherwise altered or affected, except as
otherwise disclosed to the Agent in writing. The LH Research
-5-
<PAGE>
Acquisition Agreement Transaction has been effected, closed and consummated
pursuant to, and in accordance with, the terms and conditions of the LH Research
Acquisition Agreement and all applicable Laws, including, without limitation,
any applicable bulk transfer laws. The photocopies of the LH Research
Acquisition Agreement and each of the LH Research Acquisition Agreement
Documents furnished to the Agent are true and correct photocopies thereof as of
the date furnished, and each of such documents is in full force and effect, as
appropriate. LH Research has obtained all consents, licenses and approvals to
permit it to engage in the business previously operated and conducted by LH
Research, Inc. and LH Research, Inc. has duly and properly assigned to LH
Research all of its right, title and interest in, and to, any and all
Proprietary Rights.
4.1.30. Transfer of LH Research Assets. The LH Research Assets
have been sold and transferred to LH Research free from all claims, Liens,
encumbrances, and security interests of any nature whatsoever, except for Liens
permitted by the Financing Agreement and those expressly disclosed in the LH
Research Acquisition Agreement.
4.1.31. PCC Acquisition Agreement Transaction. The Agent has
received true and correct photocopies of the fully executed PCC Acquisition
Agreement and each of the PCC Acquisition Agreement Documents. Neither the PCC
Acquisition Agreement nor any of the PCC Acquisition Agreement Documents have
been modified, changed, supplemented, canceled, amended or otherwise altered or
affected, except as otherwise disclosed to the Agent in writing. The PCC
Acquisition Agreement Transaction has been effected, closed and consummated
pursuant to, and in accordance with, the terms and conditions of the PCC
Acquisition Agreement and all applicable Laws. The photocopies of the PCC
Acquisition Agreement and each of the PCC Acquisition Agreement Documents
furnished to the Agent are or will be true and correct photocopies thereof as of
the date furnished, and each of such documents is in full force and effect, as
appropriate. International has obtained all consents, licenses and approvals to
permit it to acquire the stock of PCC.
4.1.32. Transfer of PCC Stock. The issued and outstanding stock
of PCC has been sold and transferred to International free from all claims,
Liens, encumbrances, and security interests of any nature whatsoever, except for
Liens
-6-
<PAGE>
permitted by the Financing Agreement and those expressly disclosed in the PCC
Acquisition Agreement.
4.1.33 No Environmental Liabilities. The Borrowers represent and
warrant to the best of their knowledge, information and belief, after due and
diligent inquiry, that there are no primary or contingent liabilities imposed on
any of the Borrowers relating to any environmental matter, condition, clean-up
or violation of any Environmental Law relating to any or all of the LH Research
Assets, any assets or properties of any of the Additional Borrowers and/or any
operations or other properties or interests of LH Research, Inc. or any of the
Additional Borrowers. None of the Additional Borrowers own any interest in real
property.
h. Section 6.1.23 on page 101 of the Credit Agreement is hereby
amended to temporarily increase the amount of Inventory which may be stored with
any one or more bailees, warehousemen or similar Persons without the Agent's
prior written consent, to Two Million Five Hundred Thousand Dollars
($2,500,000); such increase shall be in effect only during the period commencing
on January 1, 1996 and ending on, and including, April 30, 1996.
i. Subject to the terms, conditions and understandings expressed in
this Amendment, Section 6.2.1 on page 104, Section 6.2.2 on page 105, and
Section 6.2.6 on page 110 of the Credit Agreement are hereby amended to permit
the closing and consummation of the LH Research Acquisition Agreement
Transaction and the PCC Acquisition Agreement Transaction in accordance with the
provisions of the LH Research Acquisition Agreement and the PCC Acquisition
Agreement, respectively and the formation of LH Research as a Wholly-Owned
Subsidiary of International.
j. Section 6.2.7 on page 111 is hereby amended to permit a one-time
only increase in the maximum amount of permitted Capital Expenditures to
Seventeen Million Dollars ($17,000,000) for the fiscal year ending January 31,
1997. Any unused portion of this increase above the Eight Million Dollars
($8,000,000) currently permitted for Capital Expenditures for such fiscal year,
shall not be added to or constitute a part of the Carry Forward Amount allowed
under Section 6.2.7. For all fiscal years ending after January 31, 1997, the
Capital Expenditure Ceiling shall remain equal to the amounts currently
permitted under Section 6.2.7.
3. The terms, conditions and provisions of this Amendment shall not be
effective until each of the following conditions precedent have been satisfied
fully to the extent and in the manner
-7-
<PAGE>
required by the Agent: (i) the Borrowers (including the Additional Borrowers),
the Agent and the Lenders execute and deliver this Amendment, (ii) the Borrowers
(including the Additional Borrowers) execute and deliver such financing
statements in form and for filing as the Agent may require to perfect the liens
and security interests of the Agent and the Lenders in the Collateral owned by
any of the Additional Borrowers, in form and content acceptable to the Agent,
(iii) the Borrowers (including the Additional Borrowers) execute and deliver
such other agreements, assignments and other documents which the Agent may
require to create, perfect, and effect the liens and security interests of the
Agent and the Lenders in all real and personal property interests of
International (including, without limitation, the issued and outstanding stock
of PCC and LH Research) and any of the Additional Borrowers, all in form and
content acceptable to the Agent, (iv) the Borrowers furnish or cause to be
furnished to the Agent all of the items to be provided by the Borrowers as
listed in the "List of Closing Documents" prepared by the Agent's counsel and
previously furnished to the Borrowers within thirty (30) days of the closing and
consummation of the PCC Acquisition Agreement Transaction, (v) as of the date of
this Amendment and as of the date of closing of the LH Research Acquisition
Agreement Transaction and the PCC Acquisition Agreement Transaction, the
conditions precedent set forth in Section 5.2 shall have been fulfilled and
satisfied in a manner acceptable to the Agent, and (vi) the Borrowers shall have
reimbursed the Agent for all fees and expenses reasonably incurred by the Agent
in connection with the transactions contemplated by this Amendment (including,
without limitation, recordation costs and expenses and attorneys' fees and
expenses).
4. The Borrowers understand and agree that given the time circumstances the
Agent has elected not to require perfection of Liens on certain properties and
assets of the Additional Borrowers, including Proprietary Rights, Instruments,
Securities (other than the issued and outstanding stock of PCC) or Collateral
located in Mexico or Ireland. The Borrowers agree that the Agent reserves the
right to require such perfection at any time after the date of this Amendment as
the Agent or the Required Lenders may determine in their sole and absolute
discretion. All reasonable, out-of-pocket costs and expenses incurred by the
Agent and/or any of the Lenders, including, without limitation, attorneys' fees
and expenses, with respect to any such perfection shall be payable by the
Borrowers within ten (10) days of the Agent's written request therefor, and
shall be deemed part of the Obligations.
5. The terms "this Agreement" as used in the Credit Agreement and the terms
"Credit Agreement" as used in any of the
-8-
<PAGE>
Financing Documents shall mean the Credit Agreement as modified by herein unless
the context clearly indicates or dictates a contrary meaning.
6. The Borrowers will execute such confirmatory instruments with respect to
the Credit Agreement and/or any of the Financing Documents as the Agent may
reasonably require.
7. The Borrowers ratify and confirm all of their respective liabilities and
obligations under the Credit Agreement and agree that, except as expressly
modified in this Amendment, the Credit Agreement continues in full force and
effect as if set forth specifically herein. The Borrowers, the Agent and the
Lenders agree that this Amendment shall not be construed as an agreement to
extinguish the original obligations under the Credit Agreement and shall not
constitute a novation as to any of the joint and several obligations of the
Borrowers under the Credit Agreement.
8. This Amendment may not be amended, changed, modified, altered or
terminated without in each instance the prior written consent of the Agent, the
Lenders and the Borrowers. This Amendment shall be construed in accordance with,
and governed by, the laws of the State of Maryland.
9. The Borrowers agree that neither the execution and delivery of this
Amendment nor any of the terms, provisions, covenants, or agreements contained
in this Amendment shall in any manner release, impair, lessen, waive, or
otherwise adversely affect the joint and several liability and obligations of
the Borrowers under the terms of the Credit Agreement.
10. This Agreement may be executed in any number of duplicate originals or
counterparts, each of such duplicate originals or counterparts shall be deemed
to be an original and all taken together shall constitute but one and the same
instrument.
IN WITNESS WHEREOF, the Borrowers, the Agent and the Lenders have caused
this Amendment to be executed under seal as of the date first above written.
ATTEST: CHARTER POWER SYSTEMS, INC.
/s/ A. Kambouroglou By:/s/ Stephen E. Markert, Jr.(Seal)
Name: Name:
Title: VP and Gen. Mgr Title: CFO - V.P.
Motive Div.
-9-
<PAGE>
ATTEST: C&D CHARTER POWER SYSTEMS, INC.
/s/ Robert Marley By:/s/ Stephen E. Markert, Jr.(Seal)
Name: Name:
Title: Treasurer Title:C.F.O. - V.P.
ATTEST: CACTUS HOLDINGS, INC.
/s/ Robert Marley By:/s/ Kerry M. Kane (Seal)
Name: Name:
Title: Vice President Title: Pres.
ATTEST: INTERNATIONAL POWER SYSTEMS, INC.
/s/ Robert Marley By:/s/ Stephen E. Markert, Jr.(Seal)
Name: Name:
Title: Treasurer Title: V.P. Finance
ATTEST: RATELCO ELECTRONICS, INC.
/s/ Robert Marley By:/s/ Stephen E. Markert, Jr.(Seal)
Name: Name:
Title: Treasurer Title: V.P. Finance
ATTEST: C&D/CHARTER HOLDINGS, INC.
/s/ Robert Marley By:/s/ Kerry M. Kane (Seal)
Name: Name:
Title:V. President Title: President
ATTEST: CHARTER POWER OF CALIFORNIA
/s/ Robert Marley By:/s/ Stephen E. Markert, Jr.(Seal)
Name: Name:
Title: Treasurer Title: V.P. Finance
ATTEST: POWER CONVERTIBLES CORPORATION
_________________________ By:/s/ Stephen E. Markert, Jr.(Seal)
Name: Name:
Title: Title: Treasurer
-10-
<PAGE>
ATTEST: PCC DE MEXICO S.A. DE C.V.
_________________________ By:/s/ Michael McDonald (Seal)
Name: Name: Michael McDonald
Title: Title: Director
ATTEST: POWER CONVERTIBLES IRELAND LIMITED
/s/ Sean Young By:/s/ Edward G. Baker (Seal)
Name: Sean Young Name: Edward G. Baker
Title: Mktg Director Title: Controller
ATTEST: LH RESEARCH, INCORPORATED
/s/ Robert Marley By:/s/ Stephen E. Markert, Jr.(Seal)
Name: Name:
Title: Treasurer Title: V.P. Finance
WITNESS: NATIONSBANK, N.A.
in its capacity as Agent
/s/ Lisa Kartman By:/s/ Patrick M. Moore (Seal)
Name: Patrick M. Moore
Title: Vice President
WITNESS: NATIONSBANK, N.A.
in its capacity as a Lender
/s/ Lisa Kartman By:/s/ Patrick M. Moore (Seal)
Name: Patrick M. Moore
Title: Vice President
WITNESS: CORESTATES BANK, N.A.
in its capacity as a Lender
/s/ John Gerhardt By:/s/ Karl Schultz (Seal)
Name: Karl Schultz
Title: Vice President
WITNESS: NATWEST BANK N.A.
in its capacity as a Lender
/s/ Theresa A. Mazzilli By:/s/ Thomas L. Savage (Seal)
Name:Thomas L. Savage
Title: Vice President
-11-
<PAGE>
